Carrollton Bancorp is looking into check kiting

Bank is investigating whether it might be a victim of alleged scheme also affecting others

Carrollton Bancorp, a Baltimore-based community bank, is investigating whether it was duped in an alleged check-kiting scheme that may have cost several area financial institutions millions of dollars.

"We are gathering data to see where we stand as it relates to this account," Carrollton Chief Executive Officer Robert A. Altieri said yesterday. "If we have a loss, we will definitely take every means possible to collect."

State regulators say they suspect that Baltimore-based A&B Check Cashing was involved in a check-kiting scheme affecting Carrollton as well as Baltimore County Savings Bank and Global Express Money Orders Inc. of Silver Spring. Regulators said they referred the case to the FBI, which has confirmed that it is investigating allegations of check kiting.

Last week, Baltimore County Savings Bank revealed losses from check kiting of $6.9 million, although it has not named the commercial customer involved. Global Express has obtained a court judgment for $1.8 million from A&B's principals.

A&B provided financial services at more than 20 storefront locations, many in liquor stores and supermarkets around the Baltimore metropolitan area. It has been in business more than three decades until last month when it began shuttering offices voluntarily. Maryland's commissioner of financial regulation also issued a cease-and-desist order late last month.

A&B's parent company, Colleen Inc., owned by brothers Brian and Alec Satisky, has filed for bankruptcy protection in federal court, listing nearly $12 million in debts to Carrollton, Baltimore County Savings Bank and Global Express. Alec Satisky committed suicide June 22 at the company's headquarters. Brian Satisky could not be reached to comment.

"Under the circumstances, I'm not going to be able to respond to any of your questions," he said.

Colleen Inc. says in its bankruptcy filing that it owes Carrollton $5 million. Carrollton, which has 11 branches in Central Maryland, had assets of $360 million at the end of last year.

Altieri said the bank expects to have a "clearer picture" of what happened at the bank within days.

In check-kiting operations, perpetrators take advantage of the "float," or the amount of money in checks that have not cleared because of a time delay between when a check is written and when funds to cover that check are deducted from an account. Kiting is done by writing a bad check on one account to deposit in another, and then writing a second check to cover the first.

"The money is always in motion," said Thomas Vartanian, a former federal bank regulator and partner in the Washington law office of Fried, Frank, Harris, Shriver and Jacobson LLP. "It's a little like musical chairs."

The scheme might not be "readily obvious" and could go on undetected in the nation's payment system that involves trillions of transactions a day, Vartanian said.

He said the problem is exacerbated by the fact that banks are required by law to make funds available to consumers in a matter of days and often must do so before ensuring that an account holds sufficient funds.

Regulators in the state Department of Labor, Licensing and Regulation said officials from Farmers & Merchants Bank of Upperco raised concerns of potential fraud at A&B Check Cashing, mentioning the closure of stores and Alec Satisky's death, said Elizabeth L. Williams, a senior staff officer at the agency.

The cease-and-desist order issued by the agency alleges that A&B owed hundreds of thousands of dollars in "outstanding, unpaid obligations" to Baltimore County Savings Bank, Carrollton Bank, Farmers & Merchants Bank and Global Express. Williams said the agency linked A&B to the possible check-kiting scheme after talking with the banks.

Farmers & Merchants Vice President Yvonne Zeminski said yesterday that the bank has suffered no losses and declined to comment further, noting customer confidentiality laws.

Williams said her agency determined that banking consumers had not been affected in the scheme, which concluded its role in the investigation. She said information was then forwarded to the FBI, which has jurisdiction over fraud, theft and embezzlement occurring within or against financial institutions.

At A&B's headquarters in Hollinswood Shopping Center on West Patapsco Avenue yesterday, metal sliding doors were drawn over the shop's windows and handwritten signs that read "closed" were taped to the door. Still, former customers - apparently unaware that the company is out of business - came by and pulled at the door handle at the front entrance.

David Musgrave, an attorney for Global Express, said this week that customers went to A&B to get money orders or pay bills. Global Express would issue the money orders or pay the bills, then seek repayment from A&B for the funds that it had advanced. Late last month, however, he said that Global Express sought repayment and discovered the money wasn't there.

Gerald Goldman, general counsel to the Financial Services Centers of America, or FiSCA, trade group, described Brian Satisky as "upstanding" and praised his contributions to the industry. Brian Satisky serves on the board of directors for the trade group.

"It's shocking that all of this - whatever it is - has occurred," he said. "The only thing that I know is it's very tragic. It's so early, it's hard to get a handle on the facts. I think it's inappropriate to make any judgments."